Decoding the Income Tax amendments in the Union Budget 2015

A detailed analysis of the amendments proposed in the Income Tax Act, 1961 in the Union Budget for 2015-16:

1. Reduction of Corporate Tax Rate from 30% to 25%Effect: The amendment is to be spread over the next four financial years. Though it is a welcome move, it would have been more welcomed by the Corporate world had the entire reduction in the tax rate be given with immediate effect. In fact, the reduction will take effect only from next financial year which means that for the financial year 2015-16, corporates will end up paying higher tax at 34.60% due to the increase in surcharge.

2. Increase of surcharge for domestic companiesEffect: The proposal to increase the surcharge for domestic companies with total income exceeding Rs. 1 crore but not exceeding Rs. 10 crores from the existing 5% to 10% and for those exceeding Rs. 10 crores from the existing 10% to 12% will take away the benefits of the reduced tax rate and push up the corporate tax rate from 32.445% to 33.063% for the former category of companies and from 33.99% to.34.61% for the latter.

3. Increase in the rate of Minimum Alternate TaxEffect: Though there is no specific provision for increase in this tax rate, the cascading effect of the increase in the surcharge rate would be felt here too with the effective MAT rate for smaller companies having total income between Rs. 1 Crore and Rs. 10 Crore from 20.01% to 20.38% and for the bigger companies having total income above Rs. 10 Crores from 20.96% to 21.34%.

4. Additional surcharge for income over Rs. 1 CroreEffect: The rich would be taxed more, the mantra behind this proposal. It will make the high net worth assessees pay higher tax by way of this surcharge increased from the existing 10% to 12%. The maximum marginal tax would go up from the present 33.99% to 34.61% considering the fact the cascading effect of the education cess of 3% will now be computed on the additional surcharge too. Smaller assessees would be spared.

5. Abolishing wealth taxEffect: A welcome move, because now you don’t have to go through the hassle of filing another set of returns. However, for all those who felt that their high end assets would not come under the scrutiny of the tax authorities, it’s no time to cheer. All these assets will now have to be disclosed and declared in the income tax returns.

6. TDS on interest paid by co-operative banks to membersEffect: It will be a big set off for senior citizens and other assesses in the lower tax bracket that hitherto had been getting a nominal membership of the co-operative banks and being spared the hassle of TDS. It’s an additional burden for the banks too. Co-operative credit societies, quite surprisingly continue to enjoy this benefit.

7. Increase in exemption limit for transport allowanceEffect: This is a welcome move for employees since the limit of Rs. 800 per month has been considered too low and not at par with the increased cost of transportation in the real sense. The increase to Rs. 1,600 per month would certainly bring cheer to the working class.

8. Making employers responsible for obtaining evidence of deductionEffect: The proposed amendment to Section 192 makes it mandatory for employers to obtain evidence of deductions/exemptions/set-off of any losses that the employees claim from their taxable salary. Additional burden on the employers, the rules and the forms and the manner in which the employers are required to collect this evidence is to be announced shortly.

9. Increase in the deduction for payment of medical premiaEffect: A welcome move again, considering the high cost of medical treatment these days. The increase in the limit from Rs. 15,000 to Rs. 25,000 under Section 80D will be cheered by the individual tax payers.

10. Increase in the deduction for payment of medical premia for senior citizensEffect: A big cheer from the senior citizens for increasing this deduction under Section 80D from the present Rs. 20,000 to Rs. 30,000. Also commendable is the fact that for the uninsured very senior citizens, above the age of 80, they can claim this deduction for the expenses incurred for their medical treatment.

11. Requirement of furnishing PAN for all transactions above Rs. 1 lakhEffect: This move is certainly going to go a long way in curbing the black money menace and bring in more transparency in all transactions.

12. No transactions relating to transfer of immovable property in cash above certain limitEffect: The proposal to restrict acceptance of any loan and/or deposits from any person as also repay any such loans/deposits above Rs. 20,000 relating to the transfer of an immovable property, will also go a long way in curbing generation of black money in immovable property transactions which today is quite rampant.

13. TDS on interest on recurring depositsEffect: The proposal to rope in interest on recurring deposits too at par with interest on fixed deposits to be eligible for deduction of tax at source if it exceeds Rs. 10,000 in a financial year is a move towards bringing both the forms of investments in banks at par. This amendment is to be effective from 1st June 2015.